Penalty for Under-reporting or Misreporting of Income u/s 270A of Income Tax

What is Section 270A?

Section 270A of the Income Tax Act states that an assessing officer (AO), a commissioner (appeals), a principal commissioner, or a commissioner may direct a person to pay a penalty if he under-reports or misreports his income. The penalty may range from 50% to 200%.

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What Does Under Reporting of Income Mean Under Section 270A?

Under-reporting of income will depend on the facts of each case. Under-reporting of income takes place when a person discloses a smaller amount than their actual income. Therefore, there can be various circumstances wherein under-reporting can occur, and we have enumerated some of them below :

• If you fail to disclose any portion of income in the books of accounts or the return of income.
• If you have filed the ITR but the income assessed by the income tax officer is more than that reported in the ITR.
• If you have not filed any return but the income computed by the income tax department is more than the basic exemption limit.
• If your income computed by the IT department is more than the income computed and declared under special tax sections 115 JB or 115JC.
  • Example 1 – If a person does not file the return but his income exceeds the basic exemption limit, then it will be considered as a case of under-reporting.
  • Example 2 – If a person has filed the return but failed to consider his income from all the sources like FD interest, etc.

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Section 270A - Meaning of Misreporting of Income

As per the Income Tax Act, the term misreporting of income would include the circumstances given below -

• Misrepresentation or suppression of information
• Failure to record investments in the books
• Claim of expenditure without any evidence
• Recording of false entries in the books
• Failure to record receipt in books
• Failure to report any international transaction or deemed to be an international transaction.

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What is the Amount of Penalty that can be Levied u/s 270A?

If income is under-reported due to misreporting of income, then penalty shall be levied at 200% of tax payable on such under-reported income. However, if income is under-reported due to any other circumstances, then the penalty shall be 50% of the tax payable on under-reported income.

Note: The penalty under section 270A is in addition to the tax due on underreported or misreported income.

Calculation Under Section 270A of the Income Tax Act with Example

Example – If your income is, say, Rs. 20,00,000, and you have not reported an income of Rs 4,00,000 while filing your ITR. Then, AO can impose a penalty u/s 270A of about Rs 60,000 (50% of the tax on under-reported income, i.e., Rs 1,20,000 (400000*30%)). However, If the underreporting is due to misreporting of income, then the penalty can be up to 200% of the tax on unreported income. That means 200% of Rs. 1,20,000 (400000*30%) amounting to Rs. 2,40,000.

While filing your returns, you must disclose all your incomes under the respective heads in order to avoid penalty u/s 270A. This penalty is levied upon you for underreporting or misreporting of your income. Remember, the penalty is to be paid over and above the taxes. Therefore, file an accurate and well-timed return and become a tax-compliant citizen. Book an Online CA Now!

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